On-Premise Growth Key to Fine Wine Resurgence

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FILED DECEMBER 1, 2009

Dear Client:

We got a lot of insight from subscribers this week on the current holiday situation. The consensus is that suppliers are offering extreme discounts off-premise to boost volume in the short-term, leading some industry insiders to fear that discounts could result in long-term damage. Others feel this is a normal part of the economic cycle and high-end wines will return to growth in the next few years. One wholesaler told us that their November sales were the highest they’ve ever been, both in volume and dollars, but they’re concerned about how consumers will react to “regular” discounts once the economy rebounds. A boutique retailer confirmed that they’re “finally” getting some great deals from high-end producers who normally would never offer a discount. Clearly there are people who are still willing to spend a lot of money on wine, especially if they feel like they’re getting a deal. Meanwhile, the $6-$11 price range is the most popular with average consumers.

But there’s more to the story. Stephen Rannekleiv, executive director of the Food & Agribusiness Research and Advisory division of Rabobank International told WSD: “Easy comps are part of the increase that you’re seeing, and discounting is also a good part, but I think that for the high end in particular, a big part of what you are seeing is the shift from on-premise to off. Sales trends for most of the white table cloth restaurant segment have been steadily declining throughout the year, and many have been posting same store sales of -20% or more for the most recent quarter. Obviously, super-premium wines are heavily exposed to on-premise. Trends probably are getting somewhat better (let’s cross our fingers), but aside from the factors you’ve already mentioned, my impression is that looking at the retail side only gives the impression that super-premium wine sales are improving more than they really are.”

That’s a great point. Most consumers tend to trade down to less expensive wine when buying off-premise. Restaurant traffic, particularly in high-end establishments, will have to improve before fine wine sees a big boost.

TTB APPROVES CALISTOGA AVA, TWO WINERIES GIVEN 3 YEARS TO COMPLY WITH RULES

You may recall that this has been a hot button issue for several years now. Calistoga producers sent the initial application to the TTB in 2004, followed by 5 years of controversy surrounding a grandfather clause. In order to feature the word “Calistoga” on a wine label, the winery must source 85% of grapes from Calistoga. However, Calistoga Cellars and Calistoga Estates don’t source the required amount of grapes from the area. Those producers argued that changing their label would kill their brand, while opponents argued their labels would mislead consumers. The TTB considered grandfathering in Calistoga Cellars – but not Calistoga Estates – because the winery was established before a certain cutoff date. The agency ultimately decided against a grandfather clause. In the final ruling, they decided to give Calistoga Cellars and Calistoga Estates 3 years to stop using the Calistoga name, or begin sourcing 85% or more of their grapes from the new Calistoga AVA.

In its final ruling the, the TTB stated: “...We believe that a 3-year use-up period would be sufficient and appropriate to transition the affected brand labels without unnecessary disruptions or economic costs...We are providing this three-year transition period to allow the use-up of existing label stocks, to provide time for the design of new labels, to submit labels and receive label approvals from TTB, and to allow each affected brand label holder the opportunity to consider other changes required of its business model in light of this rulemaking, including whether to begin sourcing 85 percent or more of its grapes from the new Calistoga viticultural area in order to continue to use its brand name or to transition to a new brand name.”

THE WINE GROUP SHIFTS BRANDS TO JOHNSON BROTHERS OF NEBRASKA

WSD has learned that The Wine Group has struck a distribution deal with Johnson Brothers of Nebraska. This aligns The Wine Group with Johnson Brothers in Minnesota, Iowa, North Dakota, South Dakota and Nebraska. TWG was formerly with RNDC in Nebraska.

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